Dealers and their customers can expect a bit of a break in retail prices in the form of higher
The reason for the potential price breaks is automakers’ reactions to higher new-vehicle inventories since the chip shortage has lessened, and sales have dropped in part because of inflation, high-interest rates and other economic woes.
“We expect the second half to see pricing pressures, especially on (Ford) Blue, as we see supply and demand normalize,” John Lawler, Ford Motor Co. chief financial officer, says.
Ford Blue is the division that sells vehicles with internal-combustion and hybrid powertrains. The automaker’s other business segments are Ford Model e, for battery-electric vehicles, and Ford Pro, for commercial vehicles and services.
Rival General Motors also expects incentives to gradually increase this year. GM CFO Paul Jacobson says in a conference call higher pricing was a net benefit in the first quarter compared with the year-ago quarter. However, he expects some type of “giveback” or discounts for the rest of the year.
For the full year, he expects pricing to average out as about even in 2023 vs. 2022. That’s because prices remained high in the first quarter of 2023.
Separately, some of the largest publicly traded dealership groups complain that automakers have been slow to raise incentives, even though new vehicles aren’t as scarce. In fact, some dealerships have excess models that have lost popularity.
“Overall customer incentives remain limited,” Chris Holzshu, chief operating officer of Lithia & Driveway Motors, Medford, OR, says of discounts and other price-lowering methods.“Consequently, while inventory availability is improving, several OEMs have not invested in additional consumer incentives to meet the retail demand. We expect incentives to increase throughout the year, which should positively impact new-car volumes” due to increased affordability.
In a separate conference call, David Hult, president and CEO of Asbury Auto, Duluth, GA, says some OEMs have taken a “slow approach” to incentives. He also says dealers have too rich a mix of features and options in inventory, especially for domestic-brand trucks.
“’We’re certainly seeing it on the truck side, in the sense of people looking for a little bit less expensive…trucks,” Hult says.
According to J.D. Power, retail inventory for April was about 1.2 million units, an increase of 45% vs. April 2022. Incentives are up as a result, just not as much as dealers would like.
The average incentive spend per new vehicle was an estimated $1,599 in April, up 59% vs. a year ago, J.D. Power says. As a percentage of sticker price, the estimated average incentive in April was 3.3%, up from 2.2% a year ago, but still low by historical standards.
Asbury’s Hult says that even if average gross profit per unit declines this year, he doesn’t expect it to return to low pre-pandemic levels. Even if average gross profit declines from record highs, it would be above pandemic levels.
“I might be Pollyanna on this,” he says. “But I don’t see us getting back there. I think the OEMs are going to be a lot more efficient and better (managing a) day’s supply.”